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Court finds it has jurisdiction to grant injunctive relief to compel a shareholder of a company to lend a sum to that company on an interim basis on commercially unattractive terms

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management - Other

01-10-2018

 

UTB, LLC v Sheffield United Limited [2018] EWHC 1663 (Ch)

Court finds it has jurisdiction to grant injunctive relief to compel a shareholder of a company to lend a sum to that company on an interim basis on commercially unattractive terms, in circumstances where the shareholder otherwise has no obligation to do so. 

Facts of the case

– Sheffield United Ltd (“Sheffield”) and UTB LLC (“UTB”) jointly owned Blades Leisure Ltd (“Blades”). Blades is the ultimate holding company for Sheffield United Football Club Ltd (“FC”).

– A dispute arose between Sheffield and UTB in relation to a share sale agreement. This led to UTB issuing proceedings against Sheffield seeking inter alia specific performance of the agreement. Sheffield counter-claimed and brought additional claims against UTB and other related parties.

– In the meantime, FC had a need for continuing financial support. Sheffield applied for a mandatory injunction ordering UTB to lend Blades £1.25m on an interest free basis (to be matched by an identical loan from Sheffield).

The decision

– Mr Justice Fancourt found that:

– Sheffield was seeking an order that each shareholder lend money to Blades on commercially unattractive terms, where neither was under an obligation to do so;

– no relief was sought relating to a failure to finance Blades in accordance with any previous agreement or understanding. The only properly arguable basis on which the interim injunction was sought was that it was necessary to preserve Blades as a going concern in order to maintain the value of the shares until trial;

– under CPR r.25.1(1)(c), the court has the power to make an order for the “preservation of relevant property” and “relevant property” for these purposes includes intangible property such as shares; and

– alternatively, even if intangible property is not within CPR r.25.1(1)(c), the rule does not limit the power of the court to grant an interim injunction or cut down the broad equitable power to grant appropriate injunctive relief pending trial. Further, CPR r.25.1(3) confirms that “the fact that a particular kind of interim remedy is not listed in paragraph (1) does not affect any power that the court may have to grant that remedy”.

– However, having found that the Court did have the jurisdiction to make the order sought, and applying the American Cyanamid principles, Mr Justice Fancourt declined to make the order sought on the basis that:

– the relief sought was of an “invasive character”

– on the evidence before him, he was not satisfied that it was necessary to prevent a substantial risk of serious damages to the value of the shares

Analysis and practical advice

– The finding that the Court did have jurisdiction under CPR r.25.1(1)(c) departs from the obiter view expressed by Mr Justice Coulson in Sports Network v Calzaghe [2008] EWHC 2566 that “relevant property” had to be something physical that can be inspected, preserved and experimented on.

– Mr Justice Fancourt considered that while this would be a paradigm case, the rule did not exclude other types of property such as intangible property. He noted that in the context of a dispute over ownership of a portfolio of investments, the Court would have the power to order the sale of certain shares, or order the payment of income from the portfolio pending trial. For the purposes of CPR r.25(1)(1)(c), “relevant property” is therefore property which is the subject of a claim or as to which any question may arise on a claim.

 

 

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